How Long Does a Tax Audit Take to Complete?
Some people have the perception that IRS audits are over in a few weeks, while others may think of them dragging out for years. The reality is that the typical audit timeline is somewhere in between.
Depending on the type of IRS tax audit you're selected for, the entire process will usually take anywhere from a few weeks to about a year or so. However, cases leading to a criminal prosecution can go on for years.
How Long Does a Tax Audit Take? Audit Length by Type
There are three types of tax audits that can be conducted by the Internal Revenue Service, each of which has a slightly different timeline.
Correspondence Audits
A correspondence audit is conducted entirely by mail and is usually completed in three to six months. This kind of audit is typically initiated within seven months of filing your return.
For a faster mail audit process, respond to the letter promptly with complete and accurate information pertaining to the question at hand. If you need more time, you can request a one-time 30-day extension.
Office Audits
Office audits are conducted at your nearest IRS office where you or your professional IRS tax audit representative will meet with an IRS auditor and present the relevant documentation. For instance, a taxpayer in the Jacksonville, Florida area would generally report to the IRS Taxpayer Assistance Center in Downtown Jacksonville. Office audits are usually initiated within one year of filing your return and are generally completed in three to six months.
Factors that can draw out an office audit include:
Providing incomplete information
The discovery of issues that might cause the IRS agent to expand the scope of the audit or the number of tax returns under scrutiny
Field Audits
Field audits are the most complex and in-depth kinds of audits. They are usually initiated within one year of filing your return and typically last for around one year. The more years under review, the longer the IRS tax audit process will take.
If you have a small business, you have a higher chance of being selected for a field audit. This is because small businesses typically have fewer documents to corroborate the figures on their returns (such as W-2s and Form 1099s) and often deal in cash.
Other Factors That Influence the Length of IRS Audits
The timelines provided above are averages for simple cases. However, there are several factors and situations that can draw out a tax audit.
Small Business Audits
Small business audits are often lengthy and are likely to involve multiple tax years. As the IRS is looking to maximize its revenue, small businesses are placed under especially close scrutiny to see if they have understated their income from cash sales or overstated their deductions by claiming both personal and business expenses.
Pro tip: Ensuring meticulous small business bookkeeping from the day you start your small business makes the audit process much easier and quicker, as all of the information that the IRS auditor needs will be right there, ready to present. To ensure that your books are always accurate and audit-ready, consider investing in QuickBooks training for your team or outsourcing your bookkeeping and small business accounting to a tax professional.
Failure to Respond, or Taking a Long Time to Respond to an IRS Audit Notice
The faster an audit subject responds to an audit letter, the faster the agent assigned to the case can review the response and make a decision. Failing to respond to an audit notice, taking a long time to respond, or providing incomplete information automatically increases the audit timeline.
The IRS Agent Has a Large Caseload
On the auditor's end, a large caseload, a family or medical emergency, or the reassignment of the case to another auditor can also draw out the length of an audit. While these factors are largely outside of an auditee's control, staying informed about the progress of the audit can help.
You Have Trouble Contacting the IRS
The use of automation and call centers can mean that audit subjects may end up speaking with multiple IRS representatives, making the whole process take longer. To ensure efficient communication during the audit process, request a direct contact number for your IRS auditor and his or her supervisor in case your auditor doesn't respond.
There Are a Lot of Adjustments to Be Made
If there are a lot of adjustments to be made on your tax return, the audit process is likely to be lengthier than if you only had a missing invoice or two. The IRS agent will need to spend time chasing up corroborating records of your income and business expenses to reconcile the numbers and see if there might be further adjustments that need to be made to the return.
The Auditor Pursues Penalties
If an IRS agent does find anything amiss on a tax return, he or she will begin to assess the penalties and interest that apply to outstanding tax amounts. Penalties can include:
Failure to file
Filing late
Failure to pay any tax owed in full and on time
Failure to state all sources of income
Claiming deductions and credits for which you don’t qualify
Writing a bad check
Underpayment of estimated tax
Failure to report international income
On top of penalties, filers can be charged interest on both the outstanding tax amount and overdue penalties. During the audit process, the auditor will spend time calculating all of these amounts and consider attempts on your part to rectify anything that is amiss.
You Decide to Appeal the Decision
Once the IRS agent has compiled a case report and notified you of the outcome of the audit, you have 30 days to either accept any proposed changes and pay the outstanding taxes (if applicable) or disagree with the proposed changes and take your case to the auditor's supervisor or to the office of IRS appeals.
If you decide to appeal the auditor's adjustments, this can add months to the entire process. However, with the help of a tax professional such as an enrolled agent or tax attorney, appealing an IRS decision can often reduce the penalties and interest that you have to pay.
The Audit Process Leads to Criminal Prosecution
Information that leads an IRS agent to suspect tax fraud, tax evasion, or criminal activities like money laundering may lead to criminal prosecution. Out of the 626,204 audits conducted by the IRS in 2022, only 2,550 turned into criminal cases, so this outcome is fairly uncommon. However, if a tax audit uncovers illegal activities or intentional tax crimes, the case can continue for several years.
The Statute of Limitations
We've covered the average audit timeline, but how long does the IRS actually have to audit a given tax return?
According to the statute of limitations, IRS agents have three years to audit a tax return from the date it was due or the date it was filed—whichever is later. That means a tax return that was due April 15, 2020, and submitted on April 1, 2020, can be audited any time up to April 15, 2023.
In practice, you'll usually hear about any minor issues around seven months after filing a tax return or receive notice of a mail or field audit between one or two years after your tax return was due. On the front end, it can take the Internal Revenue System's computer system several months to process tax returns, score them, and flag suspicious returns for audit. On the back end, the IRS needs to allow enough time for case review and any potential appeals.
Extending the Statute of Limitations
For simple cases, the three-year statute of limitations will be applied. However, if the IRS agent suspects tax fraud or understated income, the statute of limitations can be extended to six tax years. In the case of an invalid return (if the return was not signed or the wording of the penalties of perjury statement was changed) or if there is suspected civil or criminal fraud, the statute of limitations can be extended indefinitely.
To be ready for any of these situations, it's important to keep business tax returns and all supporting documentation for six or seven years and property documents until the property has been resold. Making electronic copies of paper receipts can help you keep your files in order without them taking up too much space.
Tips for a Shorter Tax Audit
Before you receive an IRS audit notice and also once an audit process is underway, there are several things you can do to ensure the shortest possible resolution time.
Keep your books up to date. Before you're even selected for an audit, keeping your books up to date and in order ensures that the information on your tax returns is accurate, reducing the likelihood of an audit. If you are selected, having all of your documentation on hand will help you reply quickly for a fast resolution.
Catch up on unfiled tax returns. If you've missed a year or two or—worst case scenario—never filed a return, clear some time to catch up on unfiled tax returns right away. While you might end up owing the IRS overdue taxes, penalties, and interest, you also might not. Moreover, filing delinquent returns proactively will save you from being discovered and imprisoned for tax evasion.
Consult with a tax professional. For anything beyond a simple question from the IRS via mail, it's a good idea to engage a tax professional to advise you and represent you if you choose. Tax professionals, including enrolled agents, are well-versed in tax laws and audit strategies and can fight on your behalf for the best possible outcome. If you're found to be in debt, they can also help with tax resolution.
Respond to questions quickly and completely. Incomplete or delayed responses can lead to requests for additional documents and increase the length of the audit process. Give the IRS exactly what they're asking for and nothing else—you don't want to provide information that is beyond the scope of the audit and potentially used to increase your debt.
Check the progress of your audit. Not hearing from your auditor for a while can be unnerving. It's possible that your auditor has a lot of cases to review, but in some cases, silence can mean that your case is more serious than you thought. First, contact your auditor directly to check on the status of your audit. If you can't get in touch with the auditor, try their supervisor or call IRS customer service at (800) 829-1040 between 7 AM and 7 PM (your local time).
Help the IRS Help You
If you're selected for an audit, facing it head-on and seeking advice from a tax professional quickly are the best ways to have the audit completed in the shortest possible time.
Even if you're found owing money to the IRS, having someone guide you through the process and negotiate on your behalf can lead to an outcome that's manageable and won't take up too much of your time.
